Regulators are making it easier for savers to compare deals and, yes, some pay more than 1 per cent
On Thursday new rules came into play, which mean that anyone thinking of opening a savings account should be given an “upfront summary box” by the lender to help them to compare it with others.
The rules from the Financial Conduct Authority (FCA) will make it easier to name and shame those institutions that are giving customers a raw deal. Here’s how it works.
What is in this summary box?
It will include the rate a saver is going to get if they open or switch to a particular account, illustrated with a cash example of how much interest this will accrue on a deposit of £1,000 over 12 months. The idea is that a person could go to several banks, or inquire about different products with one bank, and compare the summary boxes to see which account will make them the most money.
What else is changing?
A bank can no longer sneakily change your rate without writing or emailing to tell you. This is a move to deal with the “bait and trap” tactics that lure customers with high introductory rates that soon plummet. The idea is that seeing the terrible rate in black and white will motivate savers to switch — 80 per cent of easy access accounts have not been switched in the past three years.
That all sounds very clear
Not exactly. These changes are a watered-down version of an earlier proposal to oblige lenders to show how a particular savings account rate compares with the rest of the market. This option was trialled over the summer and, according to the FCA, confused consumers who were not clear why their bank was telling them about rivals’ rates. It was therefore scrapped, much to the relief of banks and building societies. There is confusion because many in the savings industry don’t realise that this part has been scrapped, and so believe this week’s changes are more significant.
So the onus is on the consumer to do the comparing?
Yes, although there isn’t an easy way to know what the whole of the market offers. The best-buy tables are a snapshot of the best rates, often introductory offers. For people interested in a long-term rate, it’s harder to gauge. There are price comparison websites, but these can be problematic because they don’t cover the entire market and there may be priority given to providers who pay higher referral fees.
What were the changes designed to do?
They are part of the remedies proposed by the cash savings market study published in January 2015, which set out to improve competition in the market.
To be fair to the FCA, it is difficult to introduce measures to stimulate competition when the Treasury has wiped out any real prospect of this with its Term Funding scheme. This loans money to banks and building societies at a low rate so that they can carry on lending to consumers — with access to lots of cheap money,they no longer need savers’ deposits to finance these loans.
Will I ever get more than 1 per cent interest for my savings?
Susan Hannums, the director of savingschampion.co.uk, suggests looking to challenger banks that are offering relatively decent rates. There has been a flurry of activity in the one-year bond market. Secure Trust is offering 1.41 per cent for a one-year fixed bond and Atom Bank is offering 1.4 per cent. Masthaven, a bank that launched this week, is offering a one-year fixed rate at 1.35 per cent.
We all know what rate we are earning, don’t we?
Lex Deak, the chief executive of OFF3R, a crowdfunding company specialising in alternative investments, asked 100 people in September if they knew what rate they were getting and 84 people didn’t. This could be because rates change, some people take out an account then forget about it, or because rates are all so low that they seem indistinguishable.
How low are we talking?
Historically low. The FCA named and shamed the most miserly lenders this week — Ulster Bank and Denmark’s Danske Bank are paying 0.01 per cent on their instant savings accounts. HSBC, Co-operative Bank and Ulster Bank are paying loyal customers 1/65th of the interest offered by rival comparable products. Loyalty has never counted for less.
The worst buys
Branch-based cash savings accounts Ulster Bank 0.01 per cent Danske Bank 0.01 per cent HSBC 0.05 per cent First Trust Bank 0.05 per cent TSB 0.05 per cent Co-op 0.06 per cent Virgin Money 0.1 per cent NatWest 0.1 per cent
Branch-based cash Isa accounts TSB 0.05 per cent M&S Bank 0.05 per cent Newcastle Building Society 0.1 per cent Bank of Scotland 0.1 per cent Danske Bank 0.1 per cent HSBC 0.2 per cent Halifax 0.25 per cent NatWest 0.25 per cent